Late Friday, it looked like the market would suffer another loss until buyers, or perhaps traders who were covering shorts, salvaged the day with a 25-minute rally. But despite Friday’s small gain, the week was the worst in memory for the Dow (DJI), as it fell 6.2%.
The Wall Street Journal pointed out this weekend that since October 2007, the financial sector is down more than 83%, surpassing the 82%-plunge in the dot com stocks from 2000 to 2002.
But on Friday, the financials led the late rally, with Wells Fargo (WFC) up 6%, despite announcing a dividend cut, and Citigroup (C) up a penny. Earlier, Citigroup fell below $1 for the first time in its history.
Before Friday’s opening, the Labor Department reported that there was a decline of 651,000 non-farm payrolls in February, putting the unemployment rate at 8.1%. That’s the highest rate in more than 25 years.
At the close, the Dow Jones Industrial Average (DJI) rose 33 points to 6,627. The S&P 500 (SPX) gained under one point closing at 683, and the Nasdaq (NASD) fell six points, ending at 1,294.
The New York Stock Exchange traded 1.8 billion shares, with decliners ahead by just under 2-to-1, and on the Nasdaq almost 1 billion shares traded, with decliners slightly ahead of advancers.
For the week, the Dow was down 6.2%, the S&P 500 was off 7%, and the Nasdaq fell 6.1%.
The April crude oil contract rose $1.91 to $45.52, and the Amex Energy SPDR (XLE) gained 42 cents to $38.79.
Gold for April delivery rose $14.90 to $942.70, and the PHLX Gold/Silver Index (XAU) rose 31 cents to $119.56.
What the Markets Are Saying
Despite the extremely oversold internal indicators, the stock market shows no indication of having made a bottom.
The Dow (DJI) is down more than 40% in the past six months and is still falling — making this the worst six-month period on record. And in the past three weeks, despite the financial press’ cheerleading, every rally has turned into a one- or two-day short-covering run that ends in new lows.
But there are some bright spots.
One is the American Association of Individual Investors (AAII) Sentiment Survey. This is a “contra” indicator, meaning that the stronger the bearish reading, the greater the likelihood of a meaningful rally. Last week, for the first time ever, the AAII bearish sentiment exceeded 70%. And as noted, our internal indicators are extremely sold out.
But with the CBOE Volatility Index (VIX) showing no sign of the extreme volatility of last October and November, and other sentiment indicators neutral, my view is that the current sell-off will continue. Thus, all rallies seem doomed to fail, and our strategy is to buy into the Ultra Exchange-Traded Funds (ETFs) and other contra funds to ride that bear down.
Today’s Trading Landscape
Earnings of note to be reported include: Acorn Int’l (ATV), American Vanguard (AVD), Bitstream (BITS), Comtech Telecommunications (CMTL), Digital Ally (DGLY), Hill Int’l (HIL), Interleukin Genetics (ILI), Pegasystems (PEGA), Relm Wireless Corp (RWC), Safety Insurance Group (SAFT), Sasol Ltd (SSL) and Vivus (VVUS).
There are no economic reports due today.
Reports this morning indicate that Merck (MRK) plans to acquire Schering-Plough (SGP) in a cash-and-stock deal valued at $41.1 billion.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
